Ex-Redflex manager tells of secret meeting before firm got city business

David Kidwell, Tribune reporter

In a swanky bar overlooking the Chicago skyline, executives of a young and hungry red light camera company gathered for a secret meeting to get help in their fight for the city's business.

There to help provide it, according to a top company software designer, was a high-level city manager named John Bills — the man who would later help steer a contract their way and oversee its decadelong expansion.

As the assembled team from Redflex Traffic Systems Inc. sipped wine at a table in the Signature Lounge atop the John Hancock Center and enjoyed an iconic view of the city, Bills explained the reason they had all been called there that night, software engineer Michael J. Schmidt told the Tribune in a recent interview.

"Essentially, he spent two hours coaching us on how to win the contract, telling us how to behave, what things were going to work and what wouldn't," Schmidt said. At the end of the February 2003 meeting, Schmidt said, Bills told them they would need to pretend it had never happened when he saw them the next day at a key City Hall meeting.

Bills, now under federal investigation over allegations he took bribes to help Redflex spread its cameras throughout Chicago, has denied any wrongdoing.

"John Bills denies such a meeting ever took place, and vehemently denies ever saying anything to them to coach them or to help them get that contract," said Nishay Sanan, Bills' defense attorney. "I also want to point out that my client didn't have the power or authority to award that contract."

Schmidt, who said he lost his job amid company downsizing last year, told the Tribune he has not been contacted by federal authorities. But the newspaper has learned that federal investigators are aware such a session took place and are probing the circumstances surrounding it.

According to Schmidt, one of the top Redflex executives at that meeting was Aaron Rosenberg, then the vice president of sales. Rosenberg, who was fired amid the scandal, disclosed in court papers that he is cooperating with the federal authorities.

The bribery investigation was triggered amid a series of Tribune stories that began in 2012 and raised questions about Bills' cozy relationship with Redflex, which grew a trial project at two Chicago intersections into the largest traffic camera enforcement program in the country.

The scandal has shaken the foundation of the Phoenix-based company and its Australian parent, Redflex Holdings Ltd., which acknowledged last year that its Chicago program was built on what federal authorities would likely consider a $2 million bribery scheme involving Bills. Six top Redflex officials were jettisoned, and the company has come under scrutiny for its procurement practices across the country.

Redflex officials declined to answer the newspaper's questions about Schmidt's allegations or the federal investigation.

"In 2003, decisions regarding client relations were made by our former CEO and our former executive vice president, who are no longer with the company," Redflex spokeswoman Jody Ryan said in an email.

In 2003, Chicago was considering a trial program to stem what public officials called an epidemic of traffic scofflaws, and Redflex was a young company looking to strengthen its foothold in the highly competitive U.S. camera enforcement industry. Redflex was selected by a panel of seven city employees, including Bills, in a procurement process long criticized by one powerful Chicago alderman as defying "law and logic."

Schmidt said he and five Redflex officials flew from Arizona to Chicago that February to attend a meeting at City Hall where city officials would set out the parameters of the trial program and answer any questions from the two potential vendors. That team included Karen Finley, then vice president of operations, and Rosenberg, he said.

Finley would go on to become company president and CEO. Rosenberg was fired last year by Redflex and sued for his role in the bribery scandal. He has countersued the company, alleging that Finley and others made him a scapegoat to cover up a long-standing practice of "providing government officials with lavish gifts and bribes."

Rosenberg said in his lawsuit that he cooperated with a company-funded probe of the bribery accusations and "provided similar information to law enforcement at both the state and federal level."

All the other Redflex officials who Schmidt said were at the meeting declined to comment for this report.

Schmidt, 50, oversaw the company's computer systems in Chicago. In a series of interviews with the Tribune, he said the Signature Lounge meeting happened on the eve of a key meeting at City Hall with the two finalists for the fledgling program. Schmidt said Finley ushered the team to the lounge, where they were surprised to meet Bills.

"That's when I really knew for the first time that we already had that contract before we even checked into the hotel that day," he said. "We were going through the motions, but it was clear to me we were getting that contract. It was a done deal."

Schmidt said he and other midlevel Redflex managers sat slack-jawed as they listened to Bills — at the time an assistant commissioner in the city's Department of Transportation.

"Bills looked right at me and told me, 'I'm going to address you by name, but you have to pretend like we never met. It has to look on the up and up,'" Schmidt said.

"I remember glancing over at Karen, and she just put her finger to her mouth quietly as if to say ssshhh," Schmidt said. "There was a deal under the table to get that contract before we even went to the Hancock that night. It was obvious that something was going on that shouldn't be.

"I remember I got back to my hotel room and that night, and at least twice a year ever since, something would remind me and I was sure that it all would eventually come out," Schmidt said. "At the time, though, it was hear no evil, see no evil. I needed my job, and no one at that meeting ever talked about it again. "

Even before the scandal erupted, Ald. Edward Burke, 14th, longtime chairman of the city's Finance Committee, had long argued that the selection of Redflex and the subsequent expansions of its contract "contravene open and competitive procurement required by law." He argued in a series of letters to city attorneys in 2007 that the initial request for proposals was inadequate, did not properly disclose the potential scope of the program and therefore failed a legal requirement "to invite competition, to guard against favoritism, improvidence, extravagance, fraud and corruption.'"

In December 2002, the city issued a request for proposals for a red light camera program. There were five bidders for the trial phase of the program, records show, and Redflex was among the two finalists chosen by the panel the following month to conduct the one-camera test. The other company was Affiliated Computer Services Inc., then a heavyweight in the camera industry that has since been bought by Xerox Corp., records show.

On May 27, 2003, the selection panel picked Redflex as its contractor of choice. Since then, through a series of contract modifications, the Chicago program blossomed to become the largest and most lucrative in the nation.

The partnership between Chicago and Redflex has generated more than 4 million tickets at 190 intersections throughout the city, more than $300 million for City Hall and more than $100 million for Redflex.

Even though Redflex was fired amid the scandal more than a year ago by Mayor Rahm Emanuel, it has been granted a series of reprieves by the administration while a new vendor works to take over. That firm, Xerox State and Local Solutions Inc., owned by the copy machine giant, evolved from the same company that competed with Redflex in 2003 for the original business.

The Redflex scandal erupted in October 2012, after the Tribune obtained a 2-year-old internal Redflex whistleblower memo by an ousted vice president that detailed the alleged bribery scheme and lavish company-paid vacations for Bills and suggested "the level of this insider fraud would take down the contract and most likely the company."

At first Redflex disputed much of the memo, saying it thoroughly investigated the allegations internally and found them without merit except for one hotel stay for Bills at the Arizona Biltmore in 2010 that was inadvertently paid by Redflex. Company officials said their failure to notify City Hall at the time was an "oversight and a lapse."

But fallout from the news reports prompted Redflex to commission a second internal investigation, this time by former Chicago Inspector General David Hoffman. Hoffman's probe, completed last March, confirmed the allegations in the 2010 whistleblower memo and expanded upon them, the company said in its summary of Hoffman's investigation filed with the Australian Securities Exchange. Hoffman identified 17 company-paid trips for Bills — including airfare, hotels, rental cars, golf outings and meals, according to the filing.

Hoffman also found that Redflex paid its Chicago consultant, who has personal ties to Bills, more than $2 million, the company said . The "highly suspicious" arrangement between Redflex, the consultant and Bills "will likely be considered bribery by the authorities," the company said.

Bills retired in 2011 after a 30-year city career that saw him rise from a streetlight lamp maintenance worker to the deputy managing commissioner of the Transportation Department under former Mayor Richard M. Daley. He was a longtime top precinct captain in the political operation of House Speaker Michael Madigan.

Hoffman's findings have been turned over to federal authorities, whose work on the case has largely remained undisclosed. But Schmidt said he suspects Hoffman was never made aware of the meeting or his involvement.

"To this day, no one has come to talk to me about it," Schmidt said. "It astounds me."